Subsidized Student Loan Interest Rate Hike Staved Off for at Least One More Year

July 02, 2012

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​Congress passed legislation Friday to keep the interest rate on subsidized Stafford student loans from doubling to 6.8 percent, but only after weeks of negotiations and just two days before the increase was due to take effect.

The wide margins of the final votes in the Senate (74-19) and the House (373-52) belied weeks of arguing between Democrats and Republicans over how to pay for the $6.7 billion cost of maintaining the interest rate at 3.4 percent for another year.

The rate freeze means an estimated 7.4 million college students impacted will save an average of $1,000 in interest over the lives of their loans.

The final resolution of how to pay for the rate freeze included a provision limiting the loans to 150 percent of a student’s program term—for instance, six years for students in four-year programs.

Meanwhile, even with the rate freeze, some students could face higher costs because of separate recent student loan program changes, such as a requirement that all students begin paying interest on their loans as soon as they graduate instead of having a six-month grace period.

The student loan interest rate freeze was included in broader legislation that also extended federal transportation funding and renewed the federal flood insurance program.

Because the rate freeze approved by Congress is good for just one year, lawmakers will have to address the issue again next spring and early summer.

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